US Dollar Advances in Low Volume Trade

The US dollar advanced against a basket of currencies Monday, as strong nonfarm payrolls continued to bolster risk appetite, while the euro weakened due to widening yield differentials.

The US dollar index, a weighted average of the greenback’s performance against six major currencies, increased 0.31 percent to 80.66. The index weighs the US dollar’s performance against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

A dearth of economic data kept the US dollar supported Monday as the markets continued to weigh the latest nonfarm payrolls report. US nonfarm payrolls advanced 217,000 in May, following a revised gain of 282,000 the prior month, the Labor Department reported last week. The unemployment rate held steady at 6.3 percent.

Average hourly earnings increased 0.2 percent in May after a flat reading the prior month. Year-on-year, average earnings rose 2.1 percent.

The euro fell sharply against the greenback as yield differentials between US Treasuries and German Bunds widened to multi-year highs.

The EURUSD declined 0.42 percent to 1.3587. Initial support is likely found at 1.3557 and resistance at 1.3673.

Last week the European Central Bank slashed interest rates to 0.15 percent and introduced a negative deposit rate in an attempt to control deflationary pressures in the Eurozone. The ECB set the deposit rate at -0.1 percent, becoming the first major institution to chart a fee on deposit.

The ECB hinted last week that interest rates are likely to remain low for a long time, underscoring the vulnerability of the euro, especially as other central banks look to scale back accommodative measures. The US Federal Reserve is well on its way to ending its quantitative easing strategy this fall, while the Bank of England is forecast to become the first major central bank to introduce a rate hike.

The GBPUSD edged lower Monday, declining 0.12 percent to 1.6787. Initial support is likely found at 1.6773 and 1.6839.

The Office for National Statistics will report on industrial and manufacturing production on Tuesday and employment on Wednesday.

The dollar edged higher against the Japanese yen after trading flat in the European session. The USDJPY was trading at 102.58, advancing 0.1 percent. Initial support is likely found at 102.18 and resistance at 102.70.

The USDCAD declined 0.2 percent to 1.0905 as Canada’s housing market rebounded for the second straight month. Canadian housing starts increased 0.8 percent to a seasonally adjusted annual pace of 198,324 in May, the Canadian Mortgage and Housing Corporation reported today.

The USDCAD is testing initial support at 1.0909. A fall below 1.09 would expose 1.0886 as the next target. On the upside, resistance is likely found at 1.0952.

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